Introduction
Bitcoin is a decentralized digital currency transferred on a peer-to-peer network. This paper aims to compare and contrast the sentiments expressed in three articles on the topic. The first article argues that fiat money is not a viable medium of exchange due to its significant transaction costs and the exclusion of a significant share of the global population from the banking sector. The second source highlights that the digital transformation of economies represents the most profound disruption currently affecting financial systems worldwide. The final document emphasizes that the Fourth Industrial Revolution will bring sweeping changes across all human society, particularly impacting fiscal systems.
Comparison of the Sources
Fiat Currency Is Not an Appropriate Medium of Exchange
The authors begin by telling a story about a family in the fourteenth century to illustrate how printed money is becoming increasingly irrelevant. The Bardi Family was wealthy and prominent in the 1300s (Kajtazi & Moro, 2019). Their activities consisted of trading and banking, alongside the Peruzzi family.
The authors express that the connection between metal and currency’s value is irrelevant nowadays. Even if forging is an illicit activity that has followers, what the Bardi family attempted would not succeed, as many currencies do not exist by printing in current times (Kajtazi & Moro, 2019). Institutions can expand and debase money through quantitative easing and lending (Kajtazi & Moro, 2019). The outcome is that most dollars, pounds, or euros are created by private banks when they make loans. The skepticism concerning the role of any central authority over people’s political and economic lives raises issues about conventional fiat currencies.
I agree that fiat money is a poor medium of exchange, as it incurs high transaction costs and leaves many people worldwide without access to banking services. Bitcoin’s inventor claims that this type of currency does not work well as a store of value due to excess inflation (Kajtazi & Moro, 2019). Therefore, he proposes the currency as a novel tool independent of any central authority. It can address the mentioned issues by making its supply pre-determined, decreasing, constant, finite, and, thus, deflationary.
Additionally, Bitcoin aims to be a long-term store of value. There has been much emphasis on the significance of diversification (Kajtazi & Moro, 2019). Analysis has explored the optimal mix of assets that maximizes returns while minimizing risk (Kajtazi & Moro, 2019). According to history, the focus has always been on bonds, shares, derivatives, and spillover impact in volatility and returns (Kajtazi & Moro, 2019).
Researchers have recently investigated the connection between portfolio diversification and other aspects, such as leverage and taxes (Kajtazi & Moro, 2019). Closer to the studies are works that examine the role of currencies in portfolio diversification and associated spillovers (Kajtazi & Moro, 2019). The growing presence of cryptocurrencies has sparked interest among academics who wish to evaluate Bitcoin as an asset to include in a portfolio.
Fourth Industrial Revolution Promises Drastic Changes
I agree with the authors that the Fourth Industrial Revolution promises drastic changes in every aspect of human society, particularly in the fiscal system. Cryptocurrency and associated technologies can generate significant value in the financial and economic spheres, thereby promoting the emergence of the Fourth Industrial Revolution (Su et al., 2020). As the original decentralized cryptocurrency, Bitcoin is a virtual, encrypted digital currency in peer-to-peer form (Su et al., 2020). Together with blockchain technology, it has proven to be an essential part of the earlier-mentioned revolution. Therefore, exploring the association between its market and determinants is essential in predicting its price (Su et al., 2020). This could reduce market uncertainty and increase trading enthusiasm.
Furthermore, the investigation can aid in understanding the evolutionary patterns of Bitcoin and related blockchain technology, reflecting the progress of the Fourth Industrial Revolution, which can help inform the development of future strategies. In the early stages of the Bitcoin market, purchasers were greatly confused about its use, and the price was volatile, similar to the oil market in the 1860s (Su et al., 2020). Therefore, one should not ignore the probability of observing a specific interrelationship between the oil market and Bitcoin (Su et al., 2020). Despite the apparent differences between oil and Bitcoin as products, there are compelling arguments to suggest that the two share many similarities and could potentially interact with one another (Ndax, 2022). Nevertheless, whether the association is negative or positive, it would be difficult to state anything without thoroughly understanding the dynamics of the two markets.
For instance, if two items positively influence each other’s price, they are in the same market position. This perception is not arbitrary and has been under discussion since the inception of the digital currency market, owing to the possible diversification benefits that Bitcoin provides to hedge risks (Su et al., 2020). Since an increase in oil price may cause inflation, reduce real income and profit, and diminish public confidence, more hedge assets must be held to attain diversification benefits. It is highly likely that the Bitcoin price, which tends to move in the same direction as the oil price, will increase due to its diversification potential.
Furthermore, economic and geopolitical situations make it logical and strengthen the positive relationship between Bitcoin (BP) and oil prices (OP). For instance, the United States government’s quantitative easing program leads to the dollar weakening, which causes BP and OP to rise, as these two variables are denominated in US dollars. (Crypto, 2022). Similarly, the departure from the quantitative easing policy has the opposite effects, which both markets observed in late 2014 (Su et al., 2020).
Geopolitical events and conflicts in oil-producing countries may reduce oil supply and increase prices (Su et al., 2020). Subsequent risk aversion, coupled with wealth reallocation, could increase the demand for Bitcoin and prompt BP to move in the same direction as the oil price (Su et al., 2020). Market participants have already observed this phenomenon in a high geopolitical risk environment.
Digital Transformation of Economies Is a Disruption in The Financial Systems
I agree with the sentiment that the digital transformation of economies is the most significant disruption currently affecting all economies and financial systems. The economies and financial systems of the world are becoming digital at an unprecedented pace (Mudassir et al., 2020). In 2025, the size of the digital economy is projected to be 25%, comprising both tangible and intangible digital assets (Bitcoin Audible, 2022). The most recent technology for establishing and managing digital assets is distributed ledger technology, and its most well-known application is the cryptocurrency Bitcoin (Mudassir et al., 2020). Following these developments, blockchain technology has found its place in the intersections of Fintech and next-generation networks.
Price volatility is a significant issue regarding non-tangible digital assets, particularly cryptocurrencies. The price of Bitcoin (BTC) from April 1, 2013, to December 31, 2019 (Mudassir et al., 2020). BTC prices have exhibited extreme volatility in this period. The price increased by 1900% in 2017, consecutively losing 72% of its value in 2018 (Mudassir et al., 2020). Before 2013, the widespread interest in fiat currency was not an appropriate medium of exchange due to the exclusion of many of the world’s population from BTC; its usage in virtual transactions and its prices have been low (Mudassir et al., 2020).
Our models do not consider that period (Mudassir et al., 2020). Although the BTC prices exhibit extraordinary volatility, BTC, as a digital asset, is quite resilient as it can regain its value after significant drops (Mudassir et al., 2020). It does this even when market uncertainty is high, as during the COVID-19 pandemic (Mudassir et al., 2020). Despite its rapidly changing nature, the price of BTC has been an area where various researchers have presented efforts to forecast prices.
Conclusion
Fiat money is an inadequate medium of exchange due to its high transaction costs and the exclusion of a significant portion of the global population from traditional banking. Moreover, the digital shift in economies represents the most significant disruption affecting financial systems worldwide. Ultimately, the Fourth Industrial Revolution is anticipated to profoundly impact all areas of human society, particularly in financial structures.
References
Bitcoin Audible. (2022). Bitcoin Audible | The Best in Bitcoin Made Audible. Web.
Crypto. (2022). Crypto.com: The best place to buy Bitcoin, Ethereum, and 250+ altcoins. Crypto.com. Web.
Kajtazi, A., & Moro, A. (2019). The role of Bitcoin in well diversified portfolios: A comparative global study. International Review of Financial Analysis, 61, 143-157. Web.
Mudassir, M., Bennbaia, S., Unal, D., & Hammoudeh, M. (2020). Time-series forecasting of Bitcoin prices using high-dimensional features: a machine learning approach. Neural computing and applications, 1-15. Web.
Ndax. (2022). NDAX | Buy Bitcoin in Canada – Canadian Crypto Exchange. NDAX. Web.
Su, C. W., Qin, M., Tao, R., & Umar, M. (2020). Financial implications of fourth industrial revolution: Can Bitcoin improve prospects of energy investment?Technological Forecasting and Social Change, 158, 4-20. Web.